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We always have a car payment (5 to 6 yr loan), so why not lease for less monthly payment?

badshopperbadshopper Posts: 18
edited July 2015 in Hyundai
We have a Santa Fe to either sell privately or trade-in. We end up always trading in before our loan is completely paid off because we don't like to be out of warranty. Since we always have a payment we thought why not lease for 3 years since those monthly payments seem a lot cheaper. But, what's the catch? I've always heard it's more costly in the long run to lease compared to buying.

Our credit is always excellent, so financing always results in very low interest no matter what (usually 0% to 2.5% max for our loans, max length of 5 to 6 years). The question about leasing is... If we lease a 2016 Santa Fe Sport AWD (Prem package or Ultimate), when we trade it in after 3 years will we be paying a lot higher monthly for the next lease if we try to stay at the same level car since we won't have paid much on it like we would have with a loan if we bought the car?

We've never leased, so forgive my ignorance on the differences. Others suggest they are leasing so they can afford more car for less monthly, but are they really staying at that level, lease after lease, at a lower monthly payment than a buyer who always has a payment since they trade it in before the loan is paid off. The buyer has been paying $450+ a month for 5 years while the leaser has paid $299 a month for 3 years. But, what happens to the leaser when he trades in that car? Who ends up better off if the cost of both cars is the same at the start? Let's say it's a 2016 Sport AWD Ultimate package for $31,000 (I've seen this offer). If both the buyer and the leaser plan to stay in this level of car (buyer at 4.5 years into loan / leaser at end of 3 year lease), who ends up paying more after 9 years (2 cars for the buyer over 9 years and 3 cars for the leaser over 9 years)?

Comments

  • badshopperbadshopper Posts: 18
    Need to revise one figure in my above comment. The price offer I've seen is 32,000 not 31,000 for that new car.
  • Mr_ShiftrightMr_Shiftright Sonoma, CaliforniaPosts: 58,819
    There are a couple of snags, although some people don't consider them huge detriments because they consider the trade off of having leased a nicer car than they could probably own.

    Disadvantages:

    1. You have no equity in the car. If you buy a car and then sell it after warranty, that money is subtracted from all the years of monthly payments you made. But on a lease, it's very unlikely that the residual value (what you could buy it for) would be less than what it is actually worth.

    2. Leasing restricts your mileage, so if you go over, you pay a penalty

    3. It's very difficult to get out of a lease early with severe penalty. You're locked in pretty much unless you can find someone to take over your lease.

    4. You are responsible for damage or wear and tear above what is deemed "normal". And if the car had run flats when you leased it, you have to have run flats on it when you return it--things like that

    5. You have to include any upfront costs as part of that "low" monthly payment. If you lease a car for $199 a month for 36 months and you paid $3600 in upfront costs, then it's $299 a month.

    6. In most cases, it ends up costing more to lease then to buy.

    Advantages

    1. You can often lease a nicer car than you can buy.

    2. If the car turns out to be problematic, at least you can kiss it goodbye in 36 months. It's not yours, it's theirs.

    3. You get to drive a new car every 2 or 3 years

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  • kyfdxkyfdx Posts: 72,691
    If you actually do trade every three years, then you probably should lease..

    There are some states where the tax laws on leasing favor one over the other, though..
    One caveat: There will occasionally be a time when the vehicle you are interested in does not have a good lease program. You'll need to be flexible on which make/model you get. Mid-size sedans are usually cheap to lease.. Small to mid-size crossovers, not so much.

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  • Mr_ShiftrightMr_Shiftright Sonoma, CaliforniaPosts: 58,819
    I think badshopper said they generally trade at 4.5 years.

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  • steverstever Posts: 52,683
    We used to have a lease v buy calculator but I don't see it now. Here's one from Bankrate.com.
  • badshopperbadshopper Posts: 18
    Thanks for everyone's replies!

    More details: In the last 6 years we've averaged 13,300 miles per year. We would need a lease that allows no less than 12,000 miles per year, but prefer 15,000 if the price is not too much more, otherwise we'd watch our miles better and we could get it down to 12k per year.

    Since the advantage is that you can generally get into a nicer car for less than I'm leaning toward leasing. We're getting to the point where the Santa Fe that we like (with sunroof) is now more expensive to buy than what we feel it is worth since they make you buy the Ultimate package which includes a lot of things we just don't care about. In fact, because of the changes in value from our '09 Limited to the '15 and '16 Sport with sunroof, we've began looking at other manufacturers for the first time in decades. Hyundai is pricing us out in what we feel a car is worth. If they would have allowed just the option of a sunroof instead of packaging it with the extra electronic features (which I understand electronics are more profitable for the manufacturer) then we wouldn't be looking elsewhere. We don't care about the touchscreen or air conditioned butts (ventilated front seats), but we do prefer a sunroof. We were already on the line with increasing prices of the Santa Fe over the years we've had one, but the ultimate package is not worth it in our minds.

    So, this causes us to think it's either time to lease it for 3 years or maybe leave Hyundai. We are trendsetters. We were the first on our neighborhood to drive in with a Hyundai. Before us, the neighborhood was BMW, Mercedes, Porsche and such and not a Korean car to be found. People saw us and realized they could also have a decent car without paying lux prices. It became acceptable in our snobby neighborhood. Then, we got both sets of parents into Santa Fe's (once diehard Mercedes people). We've been quite profitable to Hyundai and our two local dealerships over the years because of our advertising their brand everywhere we went. I'm afraid Hyundai is beginning to price themselves into a higher category which is now turning our eyes toward other brands. We're in our 40's, no kids, both in careers and love to travel. One place we've seen an abundance of Hyundai is in Tahiti (more so in our third trip there).

    They were a reasonably priced SUV at one time with great features. Now, not so much reasonable. I'm not complaining, but sharing my concern of what I see coming for this company our family and friends once loved. It was about price and features. We've seen some great offers to get into a new Lexus that compares with the new Hyundai pricing if a person wants a sunroof. I never thought of Lexus and Hyundai being on the same playing field, but the pricing is getting close for certain cars and features.

    Therefore, maybe we need to consider not sticking with this brand for as long as we have and just lease for the next 3 years if we really want a Santa Fe with sunroof. That should keep the monthly payment down lower than buying it, but still not sure how we'll end up when we go to trade in that lease and what kind of car I'll end up with if trying to stay close to that monthly lease rate. I know 20 somethings that only ever lease and seem to stay at a lower monthly payment and yet stay in nice cars. One of them told me they never save up cash to put toward the signing, but instead roll that into their payment. But, I believe they aren't able to stay at the same level car, but must downsize a bit.

    Still researching and learning. I wish buying a car wasn't so expensive. They are a terrible investment. They lose money and yet a $32,000 car is like buying a $192,000 house if you think about how much you're shelling out every 5 years for the car at that price (the house price over a 30 year period vs. a means of transportation). If the U.S. had been set up like Europe's rail systems many of us would be using trains to get to work, but the U.S. culture came about from independence, lots of land and is also very young compared to old Europe.

    I guess I just don't value automobiles like some. I'm starting to see the craziness of wanting a transportation machine with all the bells and whistles. Is it that important to me to sacrifice hard earned money for a thing on wheels that loses value so fast and just gets me around. Maybe it's time to forget the sunroof, forget the cargo space and really downsize. I see doctors in my neighborhood that have done just that and now drive used small cars. We live in a golf course community with homes ranging from 2700 sq ft to over 10,000 sq ft. Attitudes are changing and more affluent are approaching car buying with stricter budgets in mind. Sure, you still see the big spender, but times are changing.
  • steverstever Posts: 52,683
    >They are a terrible investment.

    They're an expense, not an investment.

    Really, the only way to get ahead in this game is to buy a car and drive it for a decade. Even better, get a used car and drive it forever. Especially if you don't value automobiles like some.

    I haven't had a car payment since 1982, but I have had some nice trips over the years. Priorities?
  • texasestexases Posts: 7,955
    Given your desires and habits, I'd probably lease. But that'll lock you into an expensive treadmill. For those wanting to spend less, they should borrow for 3 years and keep for 10 (or more). That would greatly reduce car expenses. Cars are pretty reliable, keeping a car 10 years is no big deal in most cases.
  • kyfdxkyfdx Posts: 72,691
    One other thing...

    If you are moving up the food chain, and getting a more expensive car, because the lease payment is lower than your previous finance payment.... then, you will definitely NOT save money, over the long term.

    The lease vs. buy, where you trade every three years, only holds up if you stay with the same vehicle.

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  • badshopperbadshopper Posts: 18
    "kyfdxPosts: 35,674
    2:04PM
    One other thing...

    If you are moving up the food chain, and getting a more expensive car, because the lease payment is lower than your previous finance payment.... then, you will definitely NOT save money, over the long term.

    The lease vs. buy, where you trade every three years, only holds up if you stay with the same vehicle. "

    We don't want to move up the food chain, but stay at the same level car. However, in order to stay at the same level car that we have now (Santa Fe Limited '09, leather, sunroof...) then we end up moving into a more expensive car with the 2015 or 2016 Santa Fe Sport, leather, sunroof... due to the more expensive ultimate package (just to get the sunroof - an unfortunate change by Hyundai to force sunroof lovers into a wasteful gadget package). But, we would intend on staying at the level every 3 years.

    How does one continue leasing the same category car every 3 years for roughly the same lower monthly cost vs. buying? Is it really cheaper per month to lease the same level car if down payments are kept roughly the same bewteen buying and leasing? Are there other upfront fees a person leasing ends up paying that makes it more expensive after 9 years, let's say. I still don't understand how people are getting a car for a lesser cost by leasing than a buyer (if the buyer never pays off a car but trades it in before loan is paid off, thus always having a high monthly payment). Maybe leasing is for me. I don't plan on keeping the car past warranty. I've ended up with higher expenses fixing cars out of warranty and said I'd never do that again, but instead put that same reapir cost into a new car monthly payment. But, the cars I owned past warranty and suffered from maintenance costs were a Volkswagon and a Mazda. Maybe Hyundai is more reliable after warranties? So far, we had one repair cost only a couple months out of warranty which was of course disappointing. But, we're now facing some things that will need fixed coming in the next year which leads us to wanting to trade in or sell before we suffer those expenses.

    Our taxes in this area are under 7%, if that matters between leasing and buying. In our state we get a tax credit on the trade-in value, so that's one benefit of trading in a purchased car versus selling it privately (although I could proabably sell it on my own for more than that tax savings difference).
  • benjaminhbenjaminh Posts: 2,933
    edited July 2015

    We have a Santa Fe to either sell privately or trade-in. We end up always trading in before our loan is completely paid off because we don't like to be out of warranty....

    If the expired warranty is the main reason you trade in cars so often....

    With some cars you can get an extended warranty from the factory. For instance, for our 2013 Accord we got an 8 year 100k mi "bumper to bumper" 0 ded. HondaCare for c. $1200. That way for 8 years (rather than 3) we don't have to worry about repair costs. We had a big downpayment, but our car payment is still for 5 years. But starting in 2018 (knock on wood) we won't have a car payment, but will still be covered for another 3.

  • steverstever Posts: 52,683

    Is it really cheaper per month to lease the same level car if down payments are kept roughly the same bewteen buying and leasing?

    "There is, however, a big disadvantage when you put money down on a car lease. Let's say you have put $2,500 down on your lease and the car is either stolen or wrecked. Well, your insurance and the gap coverage (assuming you have it) will pay off the car. But your $2,500 will never be seen again, since it was used at the beginning of your lease to reduce your monthly payment. So why gamble with your money? The smarter move is to keep that money that you would have used as a down payment in an interest-bearing account and make the lease payments from it each month. You will accomplish nearly the same thing as putting the money down, while assuring that your money is safe in the event something unforeseen happens to the car."

    Dissecting the Deal - How To Spot a Good Lease

  • texasestexases Posts: 7,955
    Sounds like you want to compare buying/trading every 3 years to leasing. If those are the two cases, leasing should end up costing a little more, because you need another party to buy the car and shoulder the loan risk. But if you can find 'sweetheart' leases (where the company discounts the lease for some reason), then it might be a little cheaper to lease.
  • wlbrown9wlbrown9 Posts: 867
    Not sure if this is possible today, but years ago we purchased a Nissan Quest van and had a sunroof installed. It was about the same cost as that option was from the factory and even came with a better warranty that factory. The dealer had it sent out and installed IIRC. Check into that and if you can get a sunroof for $1500 instead of paying $4350 for the Ultimate Package, you might not need to worry about leasing.
  • isellhondasisellhondas Issaquah WashingtonPosts: 19,894
    The others have given you good advice. I can certainly argue both sides of this.

    Another plus is the fact that you will be on the curve as far as the latest technology and safety features and since you trade so often I agree you should probably lease.

    Personally, I think you may be way too nervous about owning a car that is out of warranty. Modern cars don't cause a lot of trouble and most problems will rear their head while the car is under warranty.

    Lastly, if you do lease, I would lease a car that holds it's value such as a Honda or a Toyota. High residuals equal lower payments. Korean cars have never been known for great resale value in the past but this could be changing now since they are building better cars and becoming more popular.
  • After both of us have test drove the Santa Fe 2016 Sport AWD with Ultimate package we realize something. We don't like this design compared to the one we have now. This new design, since 2013, is really a completely different car than the Santa Fe previous to it. They lowered the whole car down closer to the road (very bad for drivers in deep snow areas, like northeast Ohio where we're from. We parked this next to our '09 Santa Fe and saw how much taller off the ground ours is compared to the new design. The other thing we hate is they shrunk the window space which makes the blind spots huge compared to the older models. We don't like feeling down inside a SUV, but like feeling higher up and with greater visibility. They've gone for more of a sports car approach which is not what we want in an SUV, especially in the winter. Whoever designed this was thinking of other people to market this car to then the previous Santa Fe northern drivers in their late 30s and 40's.

    For the first time in 16 years Hyundai has lost our business. Not only does their new pricing, if you want a sunroof, put this car in the price league of some lux brands, but the new design is a turn off to us. Sorry Hyundai, but your crossover is not in the same league as the lux brands even though you're trying to price them there. The seats are also not as comfortable, as large and as plush feeling as the leather seats we have in the '09. It simply feels like a shorter, smaller ride.

    I'm no longer interested in Hyundai. Maybe if they redesign in 2019, I might take a look then.
  • benjaminhbenjaminh Posts: 2,933
    badshopper: You are so right about many SUVs and cars these days having poor rear visibility. One of the few new SUVs to have good rear visibility is the 2016 Honda Pilot. If you can live without a moonroof, the AWD Pilot LX lists for about $32k.
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